The Limits of Liability in Canada's File-Sharing Lawsuits

Over the past couple of days, there have been multiple reports about the return of file sharing lawsuits to Canada, with fears that thousands of Canadians could be targeted. While it is possible that many will receive demand letters, it is important to note that recent changes to Canadian copyright law limit liability in non-commercial cases to a maximum of $5,000 for all infringement claims.

In fact, it is likely that a court would award far less -- perhaps as little as $100 -- if the case went to court as even the government's FAQ on the recent copyright reform bill provided assurances that Canadians "will not face disproportionate penalties for minor infringements of copyright by distinguishing between commercial and non-commercial infringement."

Bill C-11, the recently enacted copyright reform bill, featured several very good provisions including an expansion of fair dealing, a user-generated content provision, new consumer protections, and a balanced approach to Internet provider liability. One of the most important changes to the law, however, was the creation of a cap on potential damages for non-commercial infringement. As I highlighted during debates on the bill, Canada is among a minority of countries that have any statutory damages at all for copyright infringement as most developed countries require rights holders to prove actual damages.

Canadian copyright law once included statutory damages rules that provided for up to $20,000 per infringement, creating the potential for massive personal liability for non-commercial file sharing (the $20,000 per infringement is still available for commercial infringement). The industry insisted it had no intention of bringing such lawsuits back to Canada (CRIA members filed file sharing lawsuits in 2004), with one industry representative telling the committee studying the copyright bill that "we're not interested in sweeping up the John Does." Yet despite those assurances, the file sharing lawsuits have begun with reports indicating that thousands of Canadians may be targeted.

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Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

Percentage of households with access to broadband Internet.
Source: OECD

The lawsuits will likely follow a three-step process. First, rights holders will seek a court order requiring Internet providers to disclose customer name and address information. Second, should the court order the disclosure, rights holders will use the information to send settlement demand letters to subscribers. The letters will allege infringement and likely offer to settle the case for several thousand dollars. If subscribers refuse to settle -- perhaps they believe the allegation is inaccurate or the settlement demands unfair -- it will fall to rights holders to follow through with a lawsuit. Given recent changes to the law, there is reason to doubt those cases will be filed as the individual liability is very limited.

The new non-commercial statutory damages provision in the Copyright Act states:

Subject to this section, a copyright owner may elect, at any time before final judgment is rendered, to recover, instead of damages and profits referred to in subsection 35(1), an award of statutory damages for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally

(b) in a sum of not less than $100 and not more than $5,000 that the court considers just, with respect to all infringements involved in the proceedings for all works or other subject-matter, if the infringements are for non-commercial purposes.

Note that rights holders can elect to pursue actual damages, but those are likely to be even smaller in the case of a downloaded movie or song. The law sets a maximum of $5,000 liability for all infringements if the rights holders rely on statutory damages. That would still be a very significant award, which is why the law also provides guidance to judges that may result in a figure closer to $100. The law includes the following provision as guidance for an award of statutory damages which instructs judges to consider:

In the case of infringements for noncommercial purposes, the need for an award to be proportionate to the infringements, in consideration of the hardship the award may cause to the defendant, whether the infringement was for private purposes or not, and the impact of the infringements on the plaintiff.

Concern about proportionality and hardship was also evident in the government's FAQ on the statutory damages change:

Will the Bill allow record labels to sue individuals and groups for large amounts, like in the U.S.?

This Bill ensures that Canadians will not face disproportionate penalties for minor infringements of copyright by distinguishing between commercial and non-commercial infringement. Under current law, for commercial and non-commercial infringements, copyright owners can sue for statutory damages ranging from $500 to $20,000 for each work that is infringed. This Bill will dramatically reduce an individual's potential liability in cases of non-commercial infringement. In such cases, statutory damages will be reduced to a one-time payment of between $100 and $5000 for all infringements that took place prior to the lawsuit.

The government also emphasized the change to statutory damages during debates in the House of Commons. For example, Industry Minister Christian Paradis told the House:

While our government knows that the overwhelming majority of Canadians are law-abiding, we are concerned about the threat of major penalties that hang over Canadians who infringe copyright for non-commercial purposes. Currently, those who have been found to violate copyright can be found liable for damages from $500 to $20,000 per work. If people illegally download five songs, for example, they could theoretically be liable for $100,000. In our view, such penalties are way out of line. As such, the bill proposes to reduce the penalties for non-commercial infringement. Under its provisions, the courts would have the flexibility to award total damages of between $100 and $5,000.

Similarly, Conservative MP Ron Cannon stated:

Our government also understands the difference between a large-scale violator and an ordinary consumer. The legislation introduces the concept of proportionality in statutory damages. It revises current provisions for statutory damages to distinguish between commercial and non-commercial infringement. That is very important. This bill reduces an individual's potential liability in cases of non-commercial infringement to a one-time payment of between $100 and $5,000 for all infringements that took place prior to any lawsuit being launched.

With rights holders are obviously entitled to pursue their claims in court (and seek either actual or statutory damages), the statutory damages provisions in Canada are clearly designed to dissuade them from pursuing lawsuits against individuals in non-commercial cases. If Canadians begin to receive settlement demand letters, they should be aware of the recent changes that limit their liability in light of the government's view that huge payment demands for non-commercial infringement are "way out of line."